Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Michael L. Igoe, Judge.
Before SPARKS, MAJOR, and MINTON, Circuit Judges.
The original plaintiff, Mid-Continent Investment Company (hereafter referred to as Mid-Continent) charged the Mercoid Corporation (hereafter referred to as Mercoid), with contributory infringement of United States Combination Patent No. 1,758,146 to Cross. The patent was issued May 13, 1930, on an application filed November 11, 1926. On June 2, 1932, it was assigned to Mid-Continent, subject, however, to an exclusive license, dated December 23, 1931, to Minneapolis-Honeywell Regulator Company (hereafter referred to as Honeywell).
The invention relates to improvements in domestic heating systems, and refers more particularly to a hot air system of heating in which the combustion gases passing to the flue are reduced in temperature in their passage through a heat exchanging device below the kindling temperature of wood. Among the particular objects of the invention are to provide a system having a furnace into which is mechanically and automatically fed a comminuted coal, such as disintegrated coal; also a system which is automatically ontrolled by a dual system of control, one phase of which operates the fuel feed and a force draft mechanism by variations in the room temperature, and the other operates the fuel feed and force draft by predetermined minimum temperatures in the furnace or combustion pot.
There are five claims and Claim 1 is typical: "A heating system comprising a combustion pot, means for feeding fuel thereto, a combustion space above the combustion pot, means controlled by the temperature of the rooms to be heated for automatically regulating the fuel feeding means, and a separate thermostatic control actuated by predetermined minimum temperatures in said combustion space for preventing extinguishment of the fire when operating under low heat requirement conditions."
The accused controls are referred to by the parties as Mercoid's M-61; TJV and M-11; and JMV.
The complaint alleges that the issues of validity, and infringement by heating systems employing Mercoid's equipment, are res adjudicata in this suit by reason of their having been adjudicated in a proceeding in a District Court of Missouri, wherein the defense was conducted by the attorney for and at the expense of Mercoid. That court found, concluded, and decreed that this patent was valid and infringed by heating systems employing equipment made by Mercoid, and that decree was affirmed by the Eighth Circuit in Smith v. Mid-Continent Inv. Co., 106 F.2d 622.
Mercoid in its answer herein denied infringement or that the patent was duly and legally issued to Cross, or that its validity was res adjudicata. It also counterclaimed upon the allegations of the answer that none of the elements of the combination were the invention of Cross, but all had been sold by Mercoid and its predecessor since the latter part of November, 1925; that the effect of the Honeywell license to make, use and sell the old elements of the patent was to create a monopoly beyond the boundaries of the patent, which disclosed a lack of good faith and unfair competition and which had resulted in irreparable damage to Mercoid. It asked for a declaratory decree defining the parties' rights under the premises recited, for triple damages, and for injunctive relief both preliminary and permanent. Thereupon the court, upon Mercoid's motion, made Honeywell an additional party plaintiff. Thereafter Honeywell involuntarily appeared specially and replied to Mercoid's counterclaim, admitting its license, setting it forth as an exhibit, but denied all allegations as to a monopoly, conspiracy, bad faith, intimidation, misuse, coercion or improper threats. It alleged full and faithful performance of the license on its part and averred its willingness to release its exclusive license in order to permit Mid-Continent to license Mercoid if the latter so desired. This pleading avoided a response to all paragraphs of the counterclaim directed solely to allegations relating to Mid-Continent.
Mid-Continent replied to Mercoid's counterclaim, and besides denying its actionable allegations, averred that those sections purporting to seek relief under the Declaratory Judgment Act, 28 U.S.C.A. § 400, should be dismissed because they set up alleged causes of action that had previously been placed in issue by the complaint and Mercoid's answer. Furthermore, the reply urged that the entire counterclaim should be dismissed because all issues raised therein were res adjudicata in favor of Mid-Continent because of the fact that they were, or could have been, decided in Mid-Continent v. Smith, supra.
The District Court found the facts specially and therefrom concluded that neither Mercoid nor its dealer installed the heating system referred to in the Smith case, supra, and that the decree in that case was not res adjudicata against Mercoid as to contributory infringement of the Cross patent, nor to the defense of laches, nor to the defense that Mid-Continent had attempted through its method of doing business to expand its patent to monopolize the sale of combustion stoker switches.
It further concluded that Mid-Continent through its predecessor had knowledge of Mercoid's low limit control prior to the issuance of the patent, and that Mid-Continent was thereby guilty of laches in not instituting this action prior to September 10, 1940, citing Wheatley v. Rex-Hide, D.C., 25 Fed.Supp. 543; Id., 7 Cir., 102 F.2d 940.
The District Court further concluded that Mercoid M-61 stoker control was a modification of a patented Mercoid (Figure 50) furnace control which was on the market in 1925; that Mercoid M-61 was not built for the express purpose of providing purchasers with means to perform the Cross patented heating system and did not contribute to the infringement of the Cross patent in suit, nor did two other Mercoid devices, referred to as TJV and JMV.
It further concluded that Mid-Continent's method of doing business fell within the condemnation of Carbice Corporation v. American Corporation, 283 U.S. 27, 51 S. Ct. 334, 75 L. Ed. 819, and Leitch Mfg. Co. v. Barber Company, 302 U.S. 458, 58 S. Ct. 288, 82 L. Ed. 371, as the practical equivalent of granting a written license with the condition that the patented system might be practiced only with combustion stoker switches purchased from its licensees; that the patent was being utilized to gain a monopoly beyond its legitimate scope, and its sole purpose as used by Mid-Continent was to suppress competition in the manufacture and sale of combustion stoker switches; that Mid-Continent's method of doing business led to the suppression of competition in unpatented appliances and was sufficient to deny the relief sought in its complaint; that Mid-Continent was not in a position to maintain this suit, under the ruling of american Lecithin Co. v. Warfield, 7 Cir., 105 F.2d 207; that Mid-Continent had conspired with Honeywell which had developed its combustion stoker switch independently of the Cross patent, and marketed it before the grant of that patent, and then conspired with Mid-Continent in restraint of trade in interstate commerce to establish a monopoly in interstate commerce in an ...